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I was talking to a friend of mine the other day about LEVERAGE, and we talked about the two ways to wealth. When you think about it, with all that’s out there, getting to your financial goals boils down to one of TWO types of leverage; FINANCIAL leverage and/or PEOPLE leverage.

FINANCIAL LEVERAGE is about making money off of money – making your money ‘work’ for you. For example, in our company Norcal Capital Management, we manage several funds, and allow investors to make money off of their money. We also make money off of money through private lending. Another simple example is when you deposit money in a bank CD (Certificate of Deposit), you are making money off of money. However, when you start making money off of borrowed money, this is where things get a lot more interesting. This is where you have to learn about volatility, risk management, IRR, cost of money, etc. I cover some of this in my book “The Wealthy Code,” all about financial leverage.

The second type is PEOPLE LEVERAGE. This is about making money off of people. This is basically any business with employees. Businesses leverage other people (their skills, pedigrees, talents, time, etc.) and make more money off of them than what they are paying them. It is similar to financial leverage in that you have ‘cost of money’ (in this case, cost of people) and the money they’re making off of the resources (money or people). With people leverage, you need to learn about systems, cost of acquisition, lifetime customer value, etc. (A good book on this topic to start with is “E-Myth Revisited” by Michael Gerber.)

In the end, check and see… If you want to leverage people, then you’re essentially a business owner. If you want to leverage money, you’re an investor. I have done both. I started running businesses when I was 16 (with my dad), managing over 50 employees, and I run hedge funds where we make money off of money. After all these years of doing both, I’ve decided I enjoy ONE of those two types of leverage. Which one, you ask?

Sorry, you’ll have to find out one day at one of our live trainings where Gary Boomershine and I are known to share a lot of information and secrets AFTER the events while we have a beer or two with students…

We’ll reveal the answer to this (and many other things), when you buy us a drink, too…

3 Comment(s)

I find that the easiest kind of leverage for me is financial, rather than dealing with people (like FSBO or residential tenants).

Building an efficient competent team of real estate professionals is necessary for either kind of business model. My team members can deal with people as needed, while I am free to crunch the numbers, structure the financing for leverage, and generally manage the team. Dealing with my professional team is easier for me compared to dealing with customers.

I thought financial leverage is where one uses borrowed money to make his own wealth. For example in real estate investing, one can borrow money,buy property and sell at a profit and therefore creating wealth.